South Africa launches 30 investigations into crypto activities

FSCA has formed a special team to probe unlicensed crypto services amid ongoing regulatory efforts. 30 cases are under scrutiny as South Africa seeks to balance innovation and compliance.

The Financial Sector Conduct Authority (FSCA) of South Africa has ramped up its focus on the cryptocurrency sector, launching 30 investigations into unauthorized crypto-related financial services. The regulator noted this in its latest regulatory actions report.

This development comes as the country’s crypto regulatory framework takes concrete shape, with the first licenses recently issued to compliant firms.

Driving the news

• The FSCA declared that crypto assets are financial products in Oct. 2022, requiring crypto providers to apply for a Financial Service Provider (FSP) license. The declaration mandated licensing for crypto exchanges and marked a pivotal moment in South Africa’s crypto regulation journey.
• The regulator gave a grace period until November 30, 2023, to submit license applications. The first set of licenses were issued in the first quarter of 2024. Crypto exchanges Luno and Valr are among the first to receive this crucial authorization.
• The FSCA’s enforcement division has now established an investigation team to tackle cases involving entities offering crypto financial services without proper licensing.

Telling quote

“In the interest of protecting the public and in support of fairness in the industry, the FSCA will act decisively against unlawful [crypto asset service providers] CASPs. … There are currently 30 cases under investigation.”

• The regulator also plans to publicize the outcomes of its investigations and issue warnings about unregistered crypto businesses.

Why it matters

• The FSCA’s crackdown on unlicensed crypto activity is part of South Africa’s broader effort to address the Financial Action Task Force’s (FATF) concerns about money laundering and terrorist financing risks.

• South Africa is one of the 12 African countries currently on FATF’s grey list.
• The country’s crypto regulation push made significant progress after the South African Reserve Bank (SARB) authorized financial institutions to serve crypto clients, indicating a cautious but progressive approach to cryptocurrency integration.
• It was only after the SARB’s declaration that the FSCA declared crypto assets as financial products.

Good to know

Beyond crypto-specific concerns, the FSCA report outlines several other focus areas that could impact the broader cryptocurrency ecosystem:

• Copy trading and signals: The regulator notes an increase in unlicensed individuals offering high-risk derivative trading services, including copy trading and signal provision.
• Finfluencers: The rise of financial influencers on social media platforms has caught the FSCA’s attention, with concerns about potential misinformation and scams.
• Online harm: The FSCA highlights the growing sophistication of online scams, including deepfake technologies and impersonation of legitimate FSPs and regulators.
• Anti-money laundering (AML) compliance: The regulator emphasizes the importance of implementing robust risk management and compliance programs (RMCPs) to combat money laundering and terrorist financing.